Is P&G the next digital giant?

July 19, 2011, 11:54 PM UTC

P&G CEO Bob McDonald

FORTUNE — As companies go, Procter & Gamble may be an old dog, but that doesn’t mean it can’t learn new tricks.

That’s what CEO Bob McDonald is claiming, as he attempts to turn the consumer product giant into a model of business in the digital age.

To accomplish this, McDonald has formed a close alliance with P&G CIO Filippo Passerini, who shared the stage with McDonald on Tuesday, kicking off Fortune’s Brainstorm Tech conference in Aspen.

Together, McDonald and Passerini have identified 88 distinct business processes underlying the $79 billion company’s operations. For each one they have analyzed the time it takes from the moment data comes to when it can be applied to the business.

By using technology to develop predictive models, they’ve found they can accelerate decision-making and compress the time it takes to act. The ultimate goal: to run the business in real-time and collapse the organization by allowing all P&G (PG) employees to get the same data at the same time.

As a result of these efforts, said Passerini, “We’ve been able to reduce $900 million in cost over the past eight years.”

One example: Until recently, P&G had a team of 5000 dedicated to demand planning. Each one had a set of inputs and techniques they used in their individual spreadsheet to make predictions. This Friday, McDonald will inaugurate a new facility in Cincinnati to aggregate demand planning using computer models, which means a good portion of those thousands of workers will be redeployed.

“We review the profit forecast, the volume forecast in real time, and we make decisions to change at that point in time,” explained McDonald. “If we had not had that capability, we probably would not have hit the quarters the way we hit them in the first half of the year, as the economy was heading south.”

McDonald also described how technology had transformed the way the company gathers feedback from its 4.2 billion customers. Remember those 1-800 numbers that used to appear on the back of all P&G products? Today P&G brand managers have a virtual “cockpit” dashboard that aggregates tweets, blogs, and emails to give them an up to the minute understanding of consumer perceptions.

And of course McDonald couldn’t fail to mention how technology (and a certain charming actor named Isaiah Mustafa) has helped Old Spice body wash and deodorant claim the number one spot in their categories. Thanks to the viral nature of the “Smell like a man, man” campaign online, P&G racked up 1.8 million free impressions.

Said McDonald, who foresees a day when P&G’s brands will have one-on-one relationships with its billions of customers, “Advertising is very different today.  You don’t talk to somebody. You engage them in a discussion and you give them the freedom to participate in that discussion, and actually to advertise for you.”

McDonald knows that making such dramatic changes means you can’t just relegate technology to the IT department. For the HR department that translates to a mandate to hire and train people so that they are technologically literate. In fact, technology competency now factors in to every employee’s performance review.

But Passerini said that getting P&G employees to buy in to the digital revolution hasn’t been a problem. “What we try to do is to make our solutions so compelling, and so attractive that there is really not push back.”

Does that include McDonald? “My ideal is always on, always connected,” he said, but he’s not a Blackberry user because the device doesn’t allow him to type fast enough. Instead, McDonald carries a small computer with a full keyboard that allows him to connect to whatever nearby cell phone towers exist in whatever country. “I don’t believe in a cloud because sometimes I can’t connect to a cloud in Kenya or Ethiopia.”

No matter how progressive P&G may be with technology, it appears some concepts are still outside the company’s comfort zone.

Read the full transcript.